A Buy Signal In Gold
- Posted by Greg Harmon
- on May 17th, 2012
Everyone has their own quirky indicators they use to review certain assets or pairs. One for me is the ratio of Gold, $GC_F, to the US Dollar Index, $DX_F. I have used this chart to illustrate sell points in the past but today it is flashing a buy signal. Let’s take a look.
There is a lot going on in this chart. The main plot is the ratio of Gold to the US Dollar Index on a weekly print with some Bollinger bands and Simple Moving Averages (SMA). The gold colored area behind the ratio is the spot price of Gold. Notice how closely correlated this chart is to the price of Gold. This has been useful in pointing out tops when the ratio hits the top of the Bollinger bands and the Relative Strength Index (RSI) becomes over bought and starts to reverse lower. With Gold now heading lower it is more useful in giving a buy signal confirmation. A reversal. Over the life of this view, 6 years, every time that the ratio has touched the bottom Bollinger band it has proven to be a buying point with a move up at least to the 20 week SMA. I have highlighted the 4 occurrences in green. This week the Gold:US Dollar Index ratio is also touching the bottom Bollinger band. This would project a move higher to a ratio of at least 20.95 or just over 10%. Using the close correlation to Gold and translating this move to it means a move back to 1700. Will this relationship and signal hold true again? Who knows.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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